Home Sales Fall 2.7%, Suggesting a Drag on '06 Economy By VIKAS BAJAJ New York Times, November 29, 2005
Sales of existing homes fell 2.7 percent last month and the inventory of houses and condominiums on the market rose to the highest monthly level in more than two years, an industry trade group reported yesterday. The National Association of Realtors said home sales fell to an annual pace of 7.09 million units in October, down from 7.29 million in September, which was the second-highest level ever. There were 2.9 million single-family houses, condominiums and co-ops for sale in October, enough to keep the market supplied for 4.9 months, up from 4.6 months in September and the most since June 2003, when there was a 5-month supply. Economists surveyed by Bloomberg News had expected sales to fall to an annual pace of 7.2 million. The association estimated that sales would have fallen by an even-greater 3.2 percent in October, had it not been for a surge in activity in cities like Baton Rouge, La., and Jackson, Miss., where evacuees from New Orleans and Mississippi coastal areas have bought homes since Hurricane Katrina struck at the end of August. Sales in the South fell 1.8 percent over all, to an annual pace of 2.8 million units. Existing-home sales reflect the closing of transactions that were entered into a month or more before. Still, in an indication that demand for homes remains relatively strong, the median sales price - half the homes sold for more and half for less - rose to $218,000 last month from $213,000 in September and was 16.6 percent higher than a year earlier. "The evidence is consistent with a slowing housing market but one that is still very strong," said Patrick Newport, an economist at the research firm Global Insight. But even a moderate slowdown will have a noticeable impact on economic growth, Mr. Newport indicated, because the rise in home values and the boom in mortgages has helped fuel consumer spending. "There is no way around it," he said. "The housing market is going to be a drag on the economy next year." The latest data reinforced other recent measures of the housing market, like home construction, new-home prices and mortgage applications. Economists and real estate industry officials link the slowing to a rise in interest rates and, in some hot markets, worries that prices have risen too fast in a run of speculation. The report also appeared to confirm anecdotes from real estate agents and others that houses were taking longer to sell, which suggests a decline in sales and prices in coming months, analysts said. The inventory increase in condominiums and co-ops - a 5.5-month supply in October, up from 5.1 months in September - has been particularly sharp in recent months. There was a 4.8-month supply of single-family houses, up from 4.5 months. In a note to clients, Ian Shepherdson, chief United States economist at High Frequency Economics, wrote: "There are now 14.4 percent more homes for sale than a year ago, while actual sales are up just 3.3 percent. With mortgage demand slipping a bit and supply rising, price gains cannot continue at their current pace." Home sales were weakest in the Northeast, where they dropped 7.4 percent, and strongest in the West, where they were down 1.2 percent. Sales in the Midwest fell 1.9 percent. The Realtors' association characterized the sales drop as a healthy cooling of a heated market. "Housing activity has peaked and is coming down a bit," David Lereah, the group's chief economist, said in a statement, "and we expect further cooling in the coming months." The average interest rate on 30-year mortgages was 6.28 percent last week, up from 5.77 percent at the start of the year, according to Freddie Mac, the mortgage reseller.
